The Myth of Day Trading

Posted by David Siminoff on 12/13/18 8:00 AM
David Siminoff
You watch the TV commercials. Some geeky guy on a boat with human decorations dancing around him. He gloats about how much he made day-trading. "All I did was..." and then he spouts what sounds like Greek. And in fact, a lot of it actually is. A few terms to consider: 
  • Alpha. It means "smarts", more or less. If you have a lot of it, you will have made good risk-reward-related bets in the land of investing and/or trading and you'll be that geek on the boat. 
  • Beta. Volatility. Risk. It's the key calculus driver in assessing the Street's view of how to price risk. 
  • Theta. Time, specifically the decay of time in options that creep slowly toward expiry. 
 
day trading data sources
 
A bunch of other Greeks live in the world of options trading and for what it's worth, only a handful of the world's finest PhDs in math from MIT, Stanford, Harvard, Wharton, and beyond...survive more than a short time as professional day traders working under the best circumstances at Goldman and Morgan and the like. 
 
So how on earth do you, recipient of a check-plus on your last Algebra 2 math quiz, compete with these people? Especially in a world that is structurally wired against you? 
 
You don't. 
 
You pay your money for the day trading course. You buy the software. You pay block commission fees in advance. And you don't do the math on the fact that when you day trade, you are realizing all of your investment gains, more or less, that day. Hence the catchy title. 
 
So all gains are taxed as ordinary income. Think: half. Half is what you keep if you live in a blue state. 
 
When you've finished paying in your 10-12-15 grand for the books and software and trading station and software patches and upgraded internet connectivity...and then last another 10 grand trading against the finest in the sport...you then shut things down and go back to your dull but fair-paying job as a CPA. 
 
warren-buffett-piggy-market
 
And you did in fact get a great education: You learned that you're not Stevie Cohen. You're not a savant. You can't hang above the rim with double-PhDs who have had a decade of Top Gun Trading School training. You weren't destined for greatness or wealth. You were destined for a nice well-balanced life. 
 
Even the greatest investor on the planet—Warren Buffett thinks day trading is a joke...impossible to, over time, predict what the market will do in that venue. It'd be like Tiger Woods not bothering to compete in the 100 foot putting contest. 
 
Doesn't that speak volumes? 

Topics: Finance

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